From Misconduct to Liquidation: The troubled journey of Swala Tanzania Plc in the Oil and Gas Industry

From Misconduct to Liquidation: The troubled journey of Swala Tanzania Plc in the Oil and Gas Industry

Tanzania’s large Oil & Gas company, Swala Tanzania Plc, has regretted announcing that it has started its liquidation process. Following the meeting of its creditors, who represent approximately 75% of its creditors, the meeting Mar 31, 2023, resolved that the Oil and Gas firm should be placed in liquidation.

Swala Oil and Gas (Tanzania) plc is a Tanzania-based oil and gas company with the license to explore oil and gas within the East African Rift system. One of its assets includes Kilosa – Kilombero Licence and Investment in PanAfrican Energy Corporation (PAE), with ca. 17,300km2 of net acreage; the company was founded in July 2011 and had its HQ in Dar es Salaam, Tanzania.

The timeline to Swala Oil and Gas Company’s decline runs back from 2017 when its wholly owned subsidiary Swala (PAEM), agreed with Orca Energy Corporation (OCRA) to accrue a 7.933% interest in PanAfrican Energy Corporation (PAEC). Ultimately, the deal ended poorly after The Fair Competition Commission heavily fined five major energy companies involved in the agreement for concluding the acquisition without duly notifying the Fair Competition Commission (FCC). 

Fines imposed on the firms are Swala PanAfrican Energy Mining ($177,712.20), Orca Exploration Group Inc ($2,888,300), PAE Pan African Energy Corporation ($2,888,300), Swala Oil and Gas Tanzania ($137,716) and PanAfrican Energy Tanzania Limited ($2,888,300).

Under the faulted agreement, Swala Tanzania would acquire 7.9% of Orca Exploration Group Inc shares in PAE PanAfrican Energy Corporation (PAEM) by Swala UK, a wholly subsidiary of Swala Tanzania.

The company’s letter released on Apr 3, 2023, which notifies the beginning of the company’s liquidation process, states that PAEC owns 100% of PanAfrica Energy Tanzania Limited, is also the sole operator of Songo Songo gas fields, is challenging tax claims in Tanzania totaling USD 55 million (as of the 31st Dec 2022), some of which date to 2008. However, despite requests to do so, ORCA has fallen short of justifying to Swala (PAEM) the commercial rationale behind the prevailing challenges. 

 According to the letter, it appears that ORCA, through its control of PAET, ORCA has engaged in misconduct and breached the Shareholder Agreement and its obligations under Mauritian law; ORCA is alleged for misappropriation and dissipation of funds and assets belonging to PAET to pay for costs that were solely its responsibility, and PAEC, controlled by ORCA, failed to address this issue. 

ORCA’s failure to issue IFRS-compliant accounts has deprived Swala of important information that may have helped it determine the extent of the breach. Furthermore, ORCA has benefited at the expense of Swala using funds that would have otherwise been attributed to Swala to pay for its ongoing tax challenges in Tanzania.

These actions could constitute a breach of trust, fiduciary duty, and contractual obligation by ORCA and PAEC. For instance, Swala (PAEM) has been deprived of funds that were supposed to be given to it according to investment and shareholder agreements. This means that Swala itself didn’t have enough money, which led to creditors deciding that Swala should be dissolved because it didn’t pay its debts. Essentially, ORCA’s actions caused financial harm to Swala and led to its insolvency.

Swala Company Plc being the first publicly listed oil and gas company will affect approximately 2000 local shareholders.

Apex Corporate Trustees (UK) Limited, responsible for managing the security on behalf of Conover Investments LP, took over the Senior Notes that Swala (PAEM) issued in December 2017 to buy shares in PAEC. They have now appointed administrators to Swala (PAEM) Limited according to their rights under the security agreement. 

According to the terms of the Production Sharing Agreement that Swala signed with TPDC and the Government of Tanzania, Swala’s ownership of the Kilosa-Kilombero license will be returned to TPDC.

Mr. Welwel will be in charge of handling the Company’s liquidation process. He will work with the company’s creditors and shareholders at the appropriate time.